South Korea's Hyundai Motor and a local government partner are aiming to sign a final deal this week on a low-cost carmaking joint venture despite stiff opposition from labour unions who fear the move would cause job losses and cut wages.
In a first such move for Korea's biggest automaker, Hyundai and the southwestern city of Gwangju agreed on Tuesday on a preliminary deal to jointly build a new factory which will have an annual capacity of 100,000 mini-SUVs starting in 2021.
The move would help Hyundai produce the model at lower cost and cut reliance on its unionised workers who have resorted to strikes almost every year to raise wages.
It would also better align the automaker with the government of President Moon Jae-in, which is struggling to keep manufacturing jobs from moving overseas amid U.S. President Donald Trump's threats to impose hefty tariffs on vehicle imports.
Gwangju is home to Hyundai affiliate Kia Motors' factories and the political stronghold of the liberal Moon government, which has made job creation its top election pledge.
Hyundai is expected to invest 53 billion won ($47.5 million)for a 19 per cent stake in the joint venture, while Gwangju will spend 59 billion won for a 21 per cent stake. The rest 167 billion won will be provided by suppliers and the local economy.
The preliminary agreement includes an annual wage of 35 million won ($31,492), a city official said. The annual wage is less than half the average 92 million won wage for existing Hyundai workers.
Hyundai declined to comment.
The plan, which the city government said will create 12,000 jobs, has already met with disapproval from Hyundai and Kia's labour unions.
Hyundai's over 50,000-member union on Tuesday warned of a full strike, fearing the move may put pressure on wages and potentially take away production and jobs from the company's existing plants in Ulsan and other cities.
Union members wearing red headbands rallied at Hyundai's factories in the southeastern city of Ulsan with banners reading "South Korea's auto industry will go bankrupt". The project will lead to "bad jobs which bring down workers' wages by half", Ha Bu-young, Hyundai Motor's Korean union chief, said on Wednesday.
The labour union said an additional plant will exacerbate excess production capacity at the automaker, which is struggling with sluggish exports to the United States and other countries and posted a plunge in quarterly net profit.
Hyundai's South Korean production fell to 1.65 million vehicles last year, the lowest level since 2009, according to data from South Korea's car association.
"We are concerned that the joint venture will expand production beyond the mini-SUVs and take a toll on our production and jobs," a Hyundai worker in Ulsan city, home to the world's biggest carmaking complex, told Reuters.
Kia's union also called for a withdrawal of the plan, which will add pressure to the niche, shrinking mini-vehicle segment, in which it holds a 69 per cent share.
Gwangju's mayor Lee Yong-sup said the "job project" will provide a "breakthrough" to the Korean economy that is struggling with the "crisis of the manufacturing sector" as big companies shift jobs overseas from the high-cost country, leading to a sharp fall in employment.
The Gwangju city was scheduled to meet on Wednesday with labour and business group officials to gain approval for the preliminary deal.
Should the contract get a green light, the city is expected to hold a signing ceremony with Hyundai on Thursday.